Banking on growth

 

Between the peak of the credit boom and the end of the first quarter this year the balance sheet of RBS contracted from £2.2 trillion to £1.4 trillion. In other words, the bank felt the need to cut its assets and liabilities, its financing of the UK and world markets, by a massive £800 billion.

Let’s allow for the fact that a lot of this was global, not UK. Let’s allow for the fact that a lot of it was cutting positions in derivatives and futures. Nonetheless, it was a huge reduction in liquidity and credit for world markets. What the Bank was doing just in the UK market was bound to have an impact on growth and activity.

What RBS was doing on a huge scale other banks were doing to a lesser extent. The banking regulators lurched from being too easy, allowing a credit binge, to being too tough. Their new belief in better cash and capital ratios meant that all banks decided to cut their loan books and take other action to improve their balance sheet ratios.

The government became aware that smaller and medium sized enterprises were finding it difficult to get bank finance. Large companies regained access to the corporate bond market and the equity market on acceptable terms, options not open to the broad mass of UK companies. So Ministers invented Project Merlin. The banks have promised to do better and lend more to UK companies.

Let’s hope they do, and let’s hope such loans are well based and successful. It would be easier if the banks at the same time were told they now have enough cash and capital, so they do not have to keep squeezing the loan book down to improve the ratios. Ratios are much healthier than in 2007-8. The time for the Regulators to demand more cash and capital is once growth has picked up and credit is flowing freely. It is not a good idea to demand more when the economy is growing slowly and credit is still scarce.

Many now say they believe in counter cyclical regulation, but there is no evidence of it happening. Regulators fuelled the boom, and helped create the bust by lurching from too easy to too tough. The UK economy needs a bit more help at the moment from credit, not a further hair shirt.

We also need more competition  n the banking market. We need more banks on the High Street, with some banks pioneering a newmodel – or recreating an older model- of local relationship banking to banks the smaller businesses sensibly.  That can be done through the Vickers Report remodelling. I would also link it with returning the state owned banks to the private sector as soon as possible.

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47 Comments

  1. lifelogic
    Posted May 29, 2011 at 7:24 am | Permalink

    Natwest/RBS in particular have behaved appallingly in snatching back funds from perfectly sound UK businesses indeed even tending to target the more sound ones as easy targets. On property changing from lending up to 75% of property values to trying to snatch it all back or squeeze it down to 50% at best and with huge fees and margins. Often their property loans are supporting trading business or building project so pulling back forces business to suspend investment in plant, building projects, expansion. Costing thousands of jobs in the private sector.

    They market themselves as Natwest Helpful Banking – helpful to huge unemployment perhaps. This is after all a government owned bank. Why on earth does the government want, once again to further crush UK business in this way? They should also look at HMRC who are also being hugely unhelpful to business.

    • lifelogic
      Posted May 29, 2011 at 9:42 am | Permalink

      I also see reported this morning that the satirically named “Liberal Democrats” are continuing trying to ensure that NHS remains the expensive, inefficient mess it largely is.

    • lifelogic
      Posted May 29, 2011 at 3:57 pm | Permalink

      BBC reported this morning that the benefit fraud level was 0.8% of benefit. If anyone believes it is that low they must be living the BBC land. Where they also think that typical state workers are the equivalent of highly qualified doctors and the typical private sector are all the equivalent of Tesco shop workers hence the 43% pay differential is fully justified as they recently suggested.

      • Stuart Fairney
        Posted May 29, 2011 at 9:35 pm | Permalink

        Indeed, how can anyone credibly claim to know the level of benefit fraud which by its very nature is clandestine and so it is axiomatic that stats cannot be relied upon, especially given their politicised nature.

    • lifelogic
      Posted May 29, 2011 at 8:35 pm | Permalink

      Project Merlin will doubtless, like the government loan guarantee scheme, the bonfire of red tape, a sensible energy policy, an EU referendum, government cut backs, a sensible IHT threshold and a strategy for growth will doubtless all turn out to be largely another PR stunt (or lie if you prefer) – rather than anything substantial, real or tangible.

  2. Stuart Fairney
    Posted May 29, 2011 at 8:18 am | Permalink

    Project Merlin eh? So the government “knows” how much banks should lend, perhaps they know how much bread Teso should sell? Macro management like this is the height of folly, clearly designed to respond to newspaper agendas. Do you seriously believe that a pseudo-command economy is the way forward?

    “The UK economy needs a bit more help at the moment from credit” Really, and where do you imagine this may come from? more printing, more borrowing, certainly not from deferred consumption and saving given the negative real interest rates Osborne and the B of E now tolerate.

    I have to say JR it is dis-spiriting when one of the very few fiscally competent MP’s (a low bar admitedly) comes out with nonsense like this.

    The one bright note is that the next ten years are now very predictable and one can plan accordingly.

    Reply: We need more bank lending to SMEs and for privately financed infrastructure

    • Stuart Fairney
      Posted May 29, 2011 at 9:32 pm | Permalink

      No argument there but where will the lending best come from? More QE, more borrowing or savings from deferred consumption? Surely the latter is best but this cannot be achieved at present with negative real interest rates.

      • Simon
        Posted May 30, 2011 at 1:16 pm | Permalink

        Wherever it comes from are our banks qualified to lend to SME’s anymore ?

        As JR points out they gave up relationship banking a long time ago ; about 20 years .

        Relationship banking and the responsible lending that went with it took a lot longer than 20 years to establish and the culture is now gone and would take more than 20 years to re-establish .

        The banks are unfit for their intended purpose of lending to British Industry .

        In their current form they are well past their sell by date and pretending they are relevent for the challenges facing the UK in the 21st century is just flogging a putrified horse .

        It’s about time their monopoly position was challenged .

    • lifelogic
      Posted May 29, 2011 at 10:06 pm | Permalink

      We certainly need more lending to SME’s. The banks are not lending, due to regulatory tightening, rather than anything to do with actual risk. Lack of confidence in Cameron and the economy means many do not wish to borrow – but those that do and have sound & secure plans are often unable to borrow on sensible terms. The private sector needs to grow – it will not do so without lending and a sensible plan from Cameron and both are lacking.

      • lifelogic
        Posted May 29, 2011 at 10:14 pm | Permalink

        In short the government should stop borrowing to tip down the drain and have a regulatory system that encourages sensible bank lending to the wealth producing tax producing private sector.

    • NickM
      Posted May 30, 2011 at 3:12 pm | Permalink

      I have a very (very) small business – me. I have £25k in the bank, partly cushion and partly for corporation tax. Recently the bank offered me a loan of £2500. Whatever for? It is too small to be meaningful, and is unconnected to anything sensible like capital investment. Presumably it is there to pad their statistics for political consumption.

  3. Nick
    Posted May 29, 2011 at 8:29 am | Permalink

    Many now say they believe in counter cyclical regulation, but there is no evidence of it happening. Regulators fuelled the boom, and helped create the bust by lurching from too easy to too tough. The UK economy needs a bit more help at the moment from credit, not a further hair shirt.

    So cut taxes.

    “We can’t cut taxes”

    Why?

    “We’ve got a government debt problem”

    What do you mean?

    Well, we’ve borrowed 1 trillion. We’ve spent all the money people have given us for their pensions, just like Robert Maxwell. That’s 1.3 trillion for the civil servants, 2.4 trillion for the state pension, we haven’t a clue as to how much the state second pension costs, …

    So, we need your money.

    But cutting taxes creates growth.

    Yes, but we need the money more. After all, if we don’t feed the beast, we won’t get our pensions, and we might get unelected and have to get a real job.

  4. APL
    Posted May 29, 2011 at 9:07 am | Permalink

    JR: “balance sheet of RBS contracted … by a massive £800 billion.”

    If other banks did similar, the HBOS group, then in pretty short order we are talking about a contraction in credit of in excess of a thousand billion pounds.

    C redit in the economy being far more significant that notes and coin in circulation, a contraction in credit spells …… deflation.

    • Stuart Fairney
      Posted May 29, 2011 at 9:37 pm | Permalink

      Tell me where to find this deflation please? All I see is price increases.

      • APL
        Posted May 30, 2011 at 12:32 am | Permalink

        Stuart Fariney: “Tell me where to find this deflation please?”

        1. House prices for one. About the only place unaffected by declining housing prices is London, but that city has a very large international clientele.

        2. Bank finance. You seem to recognize that it is more difficult to obtain bank finance & business loans. Credit is the largest part of the economy, cash and coin is a fraction of money in circulation.

        3. Greece, Ireland, Portugal, Spain and Italy are all experiencing deflation, a result of the politicians spending more, much more than they can raise in taxes.

        The price rises you see are largely a result of government QE, especially in the US and the US$ status of reserve currency allows the US to export a large proportion of their inflation to the mid east – which explains the apparent synchronous uprisings there.

        But the US is seeing inflation as a result of their QE too.

        And also to us.

        This is a chaotic failure, we won’t see uniform price falls across all asset classes*, some will inflate as investors and speculators seek higher returns – like food staples.

        * until the next stage, which will be triggered by everyone trying to sell anything they have to raise cash.

      • Conrad Jones (Cheam)
        Posted May 30, 2011 at 1:16 pm | Permalink

        You are absolutely right – where is this deflation? Everythings going up in Price which would suggest that the Bank of England have been far too successful in Creating Electronic Money by buying “Assets” of Public and Private Debt through the Asset Purchase Facility.

        What APL was saying is absolutely true also as there COULD be a massive deflation – but there isn’t at present.

        “C redit in the economy being far more significant that notes and coin in circulation, a contraction in credit spells …… deflation.”

        As “Credit” is used as money:- No Lending = No Money, except Notes and Coins, which only represents 3% of the Money Supply.

        Quantitative Easing:

        “When the APF is used for monetary policy purposes, purchases of assets are financed by the Bank creating money, rather than by issuance of Treasury Bills. Following an exchange of letters published on 5 March, the Chancellor authorised the MPC to use the APF for monetary policy purposes. ”
        http://www.bankofengland.co.uk/monetarypolicy/qe/facility.htm

        Video on How Quatitative Easing Works:
        http://www.bankofengland.co.uk/education/inflation/qe/video.htm

        What concerns me about this Asset Purchasing by the Bank of England is – Did big investment houses use this facility to dump potentially toxic Debt on the Bank of England – how did they agree a Price on these Assets? The Bank of England just creates the money electronically so won’t lose anything, and if it replaces credit that would exist if Banks lent more, won’t affect Tax Payers – so someone’s creating more money than is actually required. The Banks have been given a legal privilege to direct where this new money goes despite causing the need to create it. If the Bank of England can just create Money like this to replace a falling money supply due to reluctant Bankers, why don’t we just use this system all the time and force Banks into 100% Reserve? Wouldn’t that make the Financial System more stable?

        The money supply would then be 100% debt free. Wouldn’t Businesses and Jobs flourish under such a system? People could buy their Homes at the true market price and not be indebted to Banks for the rest of their natural lives. Why should Banks get such a large proportion of what people have to pay for their Homes? They created the money out of thin air but get huge amounts through interest payments over 25, 35 or even 45 year mortgages. They are not sacrificing the use of that money, they didn’t have it to begin with.

        When the Bank of England Sell’s these Assets – what happens to the money ? Does the Bank of England get to keep it, does the Government get to spend it? Does it just vanish as it was created just to purchase debt? If the Bank of England can just create Money to Purchase Debt, why doesn’t it do this every year to gradually reduce the National Debt?

        Speculative money surges around the World looking for profit – nothing wrong in that; this is the nature of the beast. If Banks are not afraid of losing money – or the assets it can buy, they will increase the amount of money invested in short term profit making schemes. Dealers aren’t interested in long term safety, they are generally motivated into short term bonanzas inorder to prove their worth and earn their bonuses. They have to justify their bonuses to themselves and their CEOs.

        When the prices rise enough – they dump their holdings and move on to the next increasing Stock,. share or Commodity.

        It’s merely human nature to wish to prove one’s worth and demonstrate ability to one’s superiors even if this activity results in World Wide Financial Instability. The System is at Fault here for allowing a far too loose monetary policy and allowing Private Sector Money Creation through Credit backed by nothing.

        The Government is now forced to ensure Housing remains unaffordable as it powers the debt based money supply. A democracy cannot be a democracy if it cannot control it’s own money supply. Mervyn King tries to control inflation but his hands are tied behind his back with the only two blunt instruments in his tools bag being Interest Rate and Money Printing (Electronically).

        Banks should lend money – but should not create money from nothing. Banks control the money supply, thereby controlling the economy. A simple change in the law would fix this and put a smile back on Mervyn King’s face.

        • APL
          Posted May 30, 2011 at 10:35 pm | Permalink

          Conrad Jones: “Did big investment houses use this facility to dump potentially toxic Debt on the Bank of England”

          Exactly, what if the BOE paid what the banks SAID the assets were worth, but in fact that US morgage security is empty – nothing in it at all, just an ISIN? There do seem to be such cases!

          We already know that Lehman securities are worthless, likewise Bear Stearn, now we know Greek government bonds (have fallen in value a lot-ed). Bernie Madoff flushed $50B away.

          What then? The bank has paid face value and the securities are worth – at best 50% of their face value, probably a lot less. The BoE will never ever get that money back, EVER.

          Thanks to the Euromaniacs we have loaned billions to Greece and (others eds -ed_ and all it did was postpone the inevitable day when both those governments would have to dramatically cut spending.

          The banks may have taken government money but judging by the noise among business folk on this list it sure isn’t getting into the wider UK economy?

          And by the Way, Cameron thinks it a good idea to borrow money taking us deeper into debt and give it to India for their space programme.

          I used to think Cameron was a socialist, now I just think he is insane.

      • sm
        Posted May 30, 2011 at 2:23 pm | Permalink

        Try a different measuring rod Gold or some purchasing parity.
        I would wager some asset prices have fallen relatively and other essentials may have been stable. Problem is you don’t get paid in Gold.

        • Conrad Jones (Cheam)
          Posted May 30, 2011 at 11:14 pm | Permalink

          If we got paid in Gold and could buy directly in Gold, there wouldn’t be any financial instability. The only problem would be how we would pay our Tax. I guess VAT would solve that.

          The Government cannot inflate the Gold Supply which would restrict Government spending. If the Government had to pay for Military adventures in Gold – like Libya; there would be far less Wars.

          Make Guns and Bullets expensive, no more inocent bystanders.

          At present, Governments can get the the Credit to wage War which plants the seeds of future Wars. There’s only a few who benefit from this – I bet you can guess who they are.

  5. Gary
    Posted May 29, 2011 at 9:11 am | Permalink

    So, we leave the banks as they are, just get them to lend more ?

    We are in the midst of the collapse of the largest credit bubble in history. Certainly due to misallocation of credit some sectors are short of credit, but under this system credit is always misallocated and until you reform the system you won’t achieve lending that is effective. Right now the banks are probably insolvent because their business model is flawed.

    The debt based fiat fractional reserve system is the problem, it has to go.

  6. Mike Stallard
    Posted May 29, 2011 at 9:33 am | Permalink

    I was watching Dad’s Army last night. Mr Mainwaring may have been a loon and his effete Sergeant – John le Mesurier – ineffectual but whatever else, they knew their customers very well!
    Now there is a new bank, apparently, called the Handelsbank which, like the educational revolution comes from Sweden.
    Both organisations had/have local Managers who can take decisions.
    Nationwide was one of the very few banks which didn’t waver in the Brown years. they are a bank which prides itself on local Managers too.
    If Banks are too centralised, then how can they know who is and who isn’t reliable locally? OK there are some huge organisations, but surely start ups are by definition local?
    Quite apart from all the paperwork, the tax, the nosey interference, equality outreach and ElfinSifety, it must be really difficult to persuade a huge international organisation that your boxes are the ones which get results. I’ll bet that a lot of the questions and boxes are actually misleading – they certainly are in starting up a new school with the DfE.

  7. Steve Cox
    Posted May 29, 2011 at 10:09 am | Permalink

    This appears to be a government of continuous contradictions. Make the banks increase their capital and cash reserves, and then moan and complain when that forces them to cut their lending. Tell people that they must save for their retirement, yet happily condone a zero interest rate monetary policy and tolerate high inflation that results in the ‘slow motion inflationary bank robbery’ of people’s savings. Only an simpleton would save cash under such circumstances, yet the government appears genuinely surprised when media reports show that a large number of people are not saving anything for their retirement. Tell everyone that they are cutting the deficit savagely, yet plan to increase cash spending every year of this five year Parliament. The list goes on and on. I know that politicians have a certain licence to be economical with the truth, but the Coalition is stretching this too far. Like the Bank Of England, they risk losing all credibility unless they start doing as they say, instead of telling us to do as they say and then doing the complete opposite themselves.

    • Conrad Jones (Cheam)
      Posted May 31, 2011 at 10:49 pm | Permalink

      Absolutely correct – the way the Government is acting is full of contradictions, just like the disastrous Labour Government. They started out with fine rhetoric and quickly degenerated into Spend and Tax ( yes – in that order, they spend, they inflate, and we are taxed ).

      The Tools and Resources are fully available to deal with the current Financial Crisis. They have already been demonstrated – but incorrectly.

      The Bank of England is the key to solving this problem. It created money – electronically; in order to compensate for a diminishing Money Supply by buying Banking “Assets”. It was thought that this would allow the Banks to increase their reserves enough to start lending money again.

      It slowed the panic – so was partly succesful.

      It is odd how the Government chose to inject this money directly into the Banking Sector rather than through Public Works – which would have got the money into the system without the expensive detor via Bank Lending. Instead of allowing Banks to continue sponging off Tax Payers, Students could have been given their Tuition Fees, this would have been a good investment as it would alleviate the stress now faced in Education and provided real hope for the Future. School Repair programs could have been launched providing work for Private Sub Contractors.

      Gordon Brown talked in a Parliamentay Committee recently about bringing Education to the poor and mis-fortunate Third World Countries. He missed an opportunity to improve the Poor and mis-fortunate who are currently worried about debt in this Country. The same old Rhetoric, the same contradictions and the same missed opportunities. They must think we are a bunch of idiots.

      When the Bank of England was asked to create new electronic money – we had a choice of how that money could have been distributed 1) Through Public Works that would have filetered directly into the Private Sector as debt free money OR 2) Buy Bank “Assets” of dubious quality and value, then HOPE that the Banks will lend more money into existence. The Fractional Reserve multiplication effect no doubt swayed their choice.

      They chose to give it to the Banks and stuck two fingers up at the next generation who’s only crime is to want to learn and contribute to society in a professional role.

      It makes me feel sad to think that I was lucky enough to have my Tuition Fees paid for by the Government / County Council, but the next generation have to pay while watching (bombs-ed) ripping through buildings in Libya. The Government happy to spend money on killing people abroad while shaming people into feeling selfish because they ask to receive the same benefits that many Politicians enjoyed while they were at University.

      The same old mistakes being made that Labour made, being repeated in such a short time period.

      David Cameron – for some strange reason, is now obsessed with Baling out EURO Countries who embarked on a Financial Experiment that the UK warned wouldn’t work. So why should we pay the price for their ignorance and stubbon attitude after they ignored our warnings?

  8. Michael Read
    Posted May 29, 2011 at 11:17 am | Permalink

    At your very best when you’re explaining this stuff. (And at your worst when you’re stealth punting the privatisation of our trees and health.)

    One word of caution on new banks. This could mean Sir Richard Branson having a go. Having just experienced a year-long contract with one of his enterprises, Virginmedia.com, (I wonder if that is a good idea-ed)

    • Simon
      Posted May 30, 2011 at 1:32 pm | Permalink

      He’s interminable isn’t he .

      Everything he has done since the records and the airline has been the same – poor service(as some allege-ed)

      Just like Mr Blair (Tony but perhaps David too) , (some think -ed he)loses interest very rapidly and butterflies onto something new .

      Reply: Some see Mr Branson as a great entrepreneur who brings good service at a competitive price- there should be room for him too in the market.

  9. Damien
    Posted May 29, 2011 at 12:25 pm | Permalink

    Basel 3 calls for 7 % equity holding by banks while the Vickers report is seeking 10% equity holding. Although there has been progress by the banks in reducing the size of their balance sheets two problems remain; the total balance sheets of the UK banks are more than four times the annual GDP of the UK and there still remains uncertainty on what to include and how to value the off-balance sheets of our banks. The latter was partly highlighted in the current stress test by the European Banking Authority due to report its findings in June. Germany in the past couple of weeks had to speedily change the capital structure of two of its Landesbanks.

    Last weeks notice by Moody’s and others that 14 of the UK’s banks including the state owned Lloyds and RBS are on route for a downgrade does not bode well.

    The problem remains for the banks and the government that the risk posed to the UK economy are too great, albeit they are improving against an anemic recovery. Personal debt in the UK still remains too high.

    Today we learn that NEMA the ‘bad bank’ for handling the property loans of the Irish is selling £16 billion of its UK property holdings. This is because the UK including London has not seen the 50% fall in prices in Ireland. If the sales are successful then the UK banks can get some reassurance that the value of property assets are worth what they say on their balance sheets.

    The EBA will be under enormous pressure as it faces the prospect of releasing its latest european bank stress test next month (already delayed). If because of political pressure it passes banks who subsequently fail over say the PIIGS situation then it will loose all credibility and further damage confidence. Hopefully the process will draw a line under uncertain times for the banking sector in the UK and they can move forward with some degree of confidence to meet its Merlin targets.

  10. Derek M
    Posted May 29, 2011 at 12:40 pm | Permalink

    Much of the banking crisis was caused by banks making “dodgy loans”. If we are now to ask the banks to make loans to companoes that they think are unlikely to pay the loan back, we are asking them to do what caused the trouble in the first place.

    High risk financing should be done by private shareholders. This is how companies started, and grew in more successful years gone by. The problem is that succesive governments have tried to tax private capital out of the system, and therefore the capital is not available for companies to use. In the longer term, we will not have an economy that is favourable to new businesses, and greater employment, until private capital is again considered to be an asset to the country.

  11. Posted May 29, 2011 at 2:25 pm | Permalink

    There could be more to come and even less predictable in the where, what, who and how it impacts economically. For all the clatter the UK remains very vulnerable and the signs are that we are not prepared.

    • Conrad Jones (Cheam)
      Posted May 31, 2011 at 11:47 pm | Permalink

      We aren’t, but I would wager that the Banking Executives are.

      They’ll be booking their seats on the next taxpayer funded Gravy Train, boarding soon at a City of London railway station soon.

  12. Suze Doughty
    Posted May 29, 2011 at 2:37 pm | Permalink

    Can they do it while complying with Basel III?

  13. NickW
    Posted May 29, 2011 at 5:09 pm | Permalink

    Why not go back to the days of 3i which was a business making profits by investment in promising start-ups and the funding of businesses which needed cash to expand?

    Didn’t 3i make a success of it?

  14. Conrad Jones (Cheam)
    Posted May 29, 2011 at 8:57 pm | Permalink

    “The banks have promised to do better and lend more to UK companies.

    Let’s hope they do, and let’s hope such loans are well based and successful. ”

    After British Tax Payers have bailed out several UK Banks the only thing we get in return is “Hope”?

    Although there were some interesting and constructive comments eminating from the ICB, there was very little comment on what money actually is and whether the problems created recently were as a result of how it is created. There was no mention of the 1844 Bank of England Act which sole purpose was to eradicate the creation of money by anything other than the Bank of England. There was no mention of Moral Hazzard which allows socialism into the Banking sector for help with Banks’s losses and gladly accepts the responsibility of the Tax Payer to pay for other peoples recklessnesses while preventing the Tax Payer from being rewarded when huge profits are made.

    The ICB gives the impression that something is being done – but nothing will be done as they fail to address the key fundamentals of currency creation, debt and Moral Hazzard. Banks do not create wealth, people do – Banks sole activity should be restricted to managing financial transactions and safe guarding peoples wealth – instead they steal it and are helped by incompetent naive politicians who gladly accept what they say as they are afraid of looking foolish or ignorant through asking basic questions like “How much money have the Banks created as a percentage of the UK money supply? – if any other Business did this, wouldn’t this be regarding as FRAUD?”

    I do not understand what type of upbringing some MPs have had but I was taught to pay for my own mistakes, NOT OTHER PEOPLES. It is becoming increasing apparent that Banks are not only to blame for this, MPs – who happily and obligingly support this Banking Welfare system are even more to blame, as they allow Banks to get away with this free Insurance Plan paid for with Tax. Allowing Banks to create money and also direct where it goes – like the Housing Market; highlights the fact that Politicians don’t really care about the people they allegedly represent, or just don’t understand. With the recent expenses scandals, most seem to be in politics for themseleves.

    You are quite correct – we do need more competition in the Banking Sector, but as they are all linked to the Bank of England – with Fractional Reserve Banking allowing them to create debt based money with full Tax Payer garuantees that THEY won’t lose any money and can happily carry on gambling on derivatives, futures and options contracts… don’t you think it’s time to look at preventing Banks from creating money and only allowing a democratically elected Government to create the Nation’s money? When Banks inflate the Money supply, they steal purchasing power, when they stop lending the money supply shrinks and people lose their homes and jobs. it’s as simple as that. You seem happy with the status quo, concentrating on minor tweaks here and there without looking at the fundamental structure.

    At the risk of repeating myself – I’ll say it again – are you aware of the benefits of the Government being able to create it’s own money without the need for Private Bank created money? MPs Steve Baker and Douglas Carswell already get it – do you? Or am I wasting my time – and yours; writing these comments on your website?

    • zorro
      Posted May 29, 2011 at 9:40 pm | Permalink

      Well said…..Why pay interest on money created by private banks out of nothing? The banking interests as they are currently constituted are a cancer attacking the body politic and the nation.

      zorro

      • zorro
        Posted May 29, 2011 at 9:42 pm | Permalink

        Forget capital requirements and box ticking regulation…If you screw up you lose…and not the taxpayer.

        zorro

    • Stuart Fairney
      Posted May 29, 2011 at 9:46 pm | Permalink

      No. you are not wasting your time. More and more of us get it. When fiat currencies the world over go down and we return to a gold standard those of us who have read Von Mises will be finally vindicated.

      God alone knows what the world will look like then, but I reckon you can forget the US dollar, the Euro and I suspect, poor old Sterling.

  15. Gary
    Posted May 29, 2011 at 9:01 pm | Permalink

    Nothing, in my opinion, comes close to this explanation of the virtuous 40 year cycle that lead us to this point in the global economy, and now we stand on the edge of a vortex

    http://www.zerohedge.com/article/guest-post-economic-death-spiral-has-been-triggered

    • Stuart Fairney
      Posted May 30, 2011 at 7:40 am | Permalink

      Good link, thank you.

  16. zorro
    Posted May 29, 2011 at 9:35 pm | Permalink

    ‘The OECD estimates that the implementation of Basel III will decrease annual GDP growth by 0.05 to 0.15 percentage point.’ – Wikipedia Basle 3

    From what I see, I suspect that the figure will be a lot higher in the UK as the forecasters hurriedly lower their fantasy growth rates even further. ZIRP and QE and we are still effectively flatlining….Not only that but we have an agreement which is effectively stopping banks from making sensible lending decisions on the basis of having ‘cash in the bank’ to cushion losses. Bad banks should fail and good ones succeed based on sensible investment decisions not following tick box international schemes. It is clear that this scheme is effectively helping in our de-industrialisation. Power and wealth is being quickly consolidated amongst the top dogs whilst working class/middle class people/SMEs are falling behind and paying for the top dogs’ mistakes.

    NatWest appears to be acting like a state looter of private finance. I shall be advising my father (no easy task) to withdraw his savings and look to invest elsewhere rather than see it whittle away…..

    All major decisions are trending towards this aim of slowly impoverishing the British middle class. It is not incompetence, it is by design. It is clear that there will not be a recovery and I think it is becoming clearer what the endgame is here….It will end badly in Europe and here eventually in every sense.

    zorro

    • REPay
      Posted May 30, 2011 at 3:43 am | Permalink

      The banks are plundering healthy businesses to compensate for the bad business decisions they made, and to cope with the “after the horse has bolted” legislation enacted or in the pipeline. We have particularly bad bank managers in Britain, made lazy by centralized decision-making and lack of competition. The decision to force Lloyds to close branches is a belated recognition that it should never have been allowed to take over HBoS. Classic UK policy-making. It troubles me that not a single regulator has been fired – all asleep at the wheel when a year one economics student could have foreseen the property bubble bursting.

      Too big to fail, to thick to spot the obvious and too graceless to try and help the wider community. (Even though a swift sustainable recovery would be better for them than clobbering ther customers in the short term to meet their targets.) Unfortunately bankers have us all by the short and curlies…

      • APL
        Posted May 30, 2011 at 10:42 pm | Permalink

        REPay: “it should never have been allowed to take over HBoS.”

        Wasn’t that Gordon Browns baby. The time he saved the world?

  17. malcolm whitmore
    Posted May 29, 2011 at 10:25 pm | Permalink

    It is clear that we are facing a long term decline in our economy unless new investments are made. The banks are too remote,effectively insolvent if audited honestly and hence too nervous to lend on the scale we need.
    My company was financed by 3i because we fitted the long term prospectus they operated on as this was in the country’s interest. We are very successful thanks to that strategy of long term thinking.
    We do need another 3i to meet the financing for the long term

  18. Caterpillar
    Posted May 30, 2011 at 12:31 am | Permalink

    “Many now say they believe in counter cyclical regulation, but there is no evidence of it happening. Regulators fuelled the boom, and helped create the bust by lurching from too easy to too tough. ”

    So how is the debate going to be moved forward when political capital itself is procyclical and not countercyclical? We have seen the political capital that can be gained by loosening and tightening regulation procyclically, have we ever heard politicians call for dynamic loan to value requirements – so that you could only have a 70% mortgage in times of boom but 110% in times of bust? (Assuming mark-to-model business is separated from that which can be truely valued) do we hear calls for historic value and not mark to market? And do we hear politicans call for more derivative trading to price risk? It would be an honourable, and thence short careered, politican that truly pushed these policies.

    And as an aside, OK bubbles are hard to short so perhaps this is an indication of a reinforcing loop that needs to be acted on with policy – but do real growth reinforcing loops have the same signal?

  19. BobE
    Posted May 30, 2011 at 2:32 am | Permalink

    It seems like the only solution is to dump the debt into the EU. Then take well payed EU jobs.
    I bet this is the outcome.

  20. BobE
    Posted May 30, 2011 at 2:36 am | Permalink

    The solution to the 1930s depression was war. Very effective

  21. BobE
    Posted May 30, 2011 at 2:56 am | Permalink

    John can you please explain the logic behind borrowing money from China to give to India. India is a rich and globally active country, why does she need us?

  22. Conrad Jones (Cheam)
    Posted May 31, 2011 at 1:53 pm | Permalink

    FCA (Financial Conduct Authority):

    “The FCA’s strategic objective is: protecting and enhancing confidence in the UK financial system”
    http://www.hm-treasury.gov.uk/d/consult_newfinancial_regulation170211.pdf

    So if the FCA discovered a Financial Scam or Ponzi Scheme – would it be prevented from informing the General Public as it might destroy confidence in the ‘UK financial system’ ?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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